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Protectionism vs productivity

32 1 4
27.08.2020

ARTICLE: Pakistan has the world's seventh-most protected economy. The country's inward oriented trade policies have served as a substantial roadblock to integration in regional and global value chains. This is evidenced through research by the World Bank, PIDE and APTMA, and particularly through the work of senior economist Gonzalo Varela, which is drawn upon in this article. While modern day production networks rely on components of final goods being able to move with ease through multiple countries, protectionism has made this process inefficient and costly in Pakistan. Tariffs and other duties on imports ultimately serve as a tax on exports, as on intermediate inputs, these can be up to four times higher than in East Asia. Furthermore, average tariffs on final goods in Pakistan are 50 percent higher than the average for South Asia, and almost three times as high as the average for East Asia. (World Bank)

It is evident that periods of high tariffs within Pakistan led to export reduction, while low import taxes promote exports. In this context, a reduction in taxes can be observed from the following data: the first decade of the 2000s, government reduced trade taxes from 23.1% in 1999-2000 to 8.9% in 2014. This had led to gains in exports by 173%. However, this reduction was not consistent and until 2019, the tariffs increased to 11.6%, declining the exports to 9.1%. (PIDE)

As a glaring example of irrational tariff policies, the MMF tariff regime effectively prevents Pakistan from aligning its products in tandem with the rest of the world. More than 60% of world textile trade is in MMF materials, the demand for which has grown exponentially owing to the convenience it affords. However, the duty protection given to obsolete plants in Pakistan is denying the Pakistani industry any chance to compete in this booming market, internationally or domestically. As a result, our textiles sector has primarily been........

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